The CFPB has finalized updates to its mortgage servicing rules. While these updates provide guidance and clarification on the interpretation and application of several of the mortgage servicing rules, several new or expanded requirements could create compliance burdens as servicers update their policies and procedures to account for the new rules. Most of the new rules take effect one year after publication in the Federal Register. Requirements regarding periodic statements in the event of bankruptcy and successors in interest will take effect 18 months after publication.
Key aspects of the new rule include:
Periodic statements to borrowers in bankruptcy: The new rule provides, generally, that servicers provide borrowers periodic statements with bankruptcy-specific information, as well as a modified written early intervention notice to let those borrowers know about loss mitigation options. Under the currently applicable rules, servicers do not have to provide periodic statements or early intervention loss mitigation information to borrowers in bankruptcy.
Loss mitigation status updates: The new rule requires servicers to notify borrowers promptly and in writing that a loss mitigation application is complete, indicating the date of completion, the time frame for evaluation, and that the borrower is entitled to certain protections during the evaluation period.
In-flight loss mitigation: The new rule provides that, generally, a new servicer must comply with loss mitigation requirements under the same timing requirements that applied to the previous servicer, but provides limited extensions to these time frames under certain circumstances. Under the new rule:
- If a borrower submits an application shortly before transfer and is not evaluated by the prior servicer, the new servicer must send an acknowledgment notice within 10 business days of the transfer date.
- If the borrower’s application was complete prior to transfer but not evaluated by the prior servicer, the new servicer must evaluate it within 30 days of the transfer date.
- If the new servicer needs more information to evaluate the application, the borrower would retain some foreclosure protections in the meantime.
- If the borrower submits an appeal, the new servicer has 30 days to make a determination on the appeal.
Evergreen loss mitigation requirements: The new rule removes the “one bite at the apple” provision, which only affords borrowers regulatory protections for a single completed loss mitigation application over the life of the loan. Instead, it will require that servicers afford the same regulatory protections again for borrowers who have brought their loans current at any time since submitting the prior complete loss mitigation application.
Updated anti-dual tracking requirements: The new rule expands on the anti-dual tracking provisions of the current rule. It provides that a servicer that has made a foreclosure notice or filing and receives a timely complete application must not initiate a foreclosure judgment or sale unless the borrower’s loss mitigation application is properly denied or withdrawn, or, if approved, the borrower fails to perform on a loss mitigation agreement.
Clarified “delinquency”: The new rule clarifies that delinquency, for purposes of the servicing rules, begins on the date a borrower’s periodic payment becomes due and unpaid. The rule also allows the servicer to consider partial payments as timely, and thus they will not trigger delinquency.
Successors in interest: The new rule puts in place a comprehensive definition of successor in interest that covers persons who receive property: (1) upon the death of a relative or joint tenant; (2) as a result of a divorce or legal separation; (3) through certain trusts; or (4) from a spouse or parent. The rule generally provides these successors in interest with the same mortgage servicing protections as the original borrower received.
While no individual clarification or amendment represents a major change from the currently applicable rules, mortgage servicers will need to evaluate the rule and prepare for policy, procedure, and system updates.